The Federal Government announced late last week that the first agreement under its $5 billion Asset Recycling Initiative has been signed with the ACT Government, demonstrating the Federal Government's commitment to the Initiative despite the underlying legislation remaining stalled by the Senate. Government sector leader and Partner Paul Kenny, Managing Associate Emin Altiparmak and Lawyer Ellie Mulholland report.
Further to our Budget Wrap Focus on 24 June 2014, in which we outlined the pipeline of asset recycling opportunities, the Federal Treasurer Joe Hockey and ACT Chief Minister Andrew Barr signed the first agreement under the Asset Recycling Initiative on 19 February 2015.1 The Federal Government will provide approximately $60 million in incentive payments to the ACT Government for reinvesting all of the proceeds of its $400 million of planned asset sales into the Capital Metro light rail project. In addition to the $105 million privatisation of ACTTAB to Tabcorp in October 2014, the ACT Government plans to sell commercial property and public housing. Under the terms of the agreement, the Federal Government will pay the ACT Government an incentive payment equal to 15 per cent of the sale proceeds, with interim and final milestone payments for each asset sale.
Capital Metro is to be delivered as a Public Private Partnership, with entry into the PPP contract expected by March 2016 and commencement of construction set for October 2016. The Federal Treasurer acknowledged the project was controversial in the ACT, but the Government was satisfied that the project met the criteria of the Asset Recycling Initiative, namely that the new infrastructure supports economic growth and enhanced productivity.
The agreement takes the form of a schedule to the National Partnership Agreement on Asset Recycling, signed by the Federal Government and State and Territory Governments on 2 May 2014 (for further information, see our Focus: National Partnership Agreement on Asset Recycling). The $5 billion funding announced in the Federal 2014-15 Budget is available on a first-in, first-served basis. With asset sales in Queensland currently off the table following the recent state election result, NSW is likely to get the bulk of the remaining funding if it proceeds with its plan to privatise its electricity assets.
This first agreement was signed despite the underlying legislation, to establish the Asset Recycling Fund, unable to pass through the Senate. The Asset Recycling Fund Bill 2014 (Cth) and Asset Recycling Fund (Consequential Amendments) Bill 2014 (Cth) are languishing in the House of Representatives, after it failed to agree to the amendments insisted upon by the Senate, which included a Senate veto right to disqualify projects. The issue of using Commonwealth funding as an incentive to privatise assets and recycle proceeds into new infrastructure is subject to a current Senate inquiry. The Senate Economics References Committee held public hearings in Darwin on 16 February and Sydney on 18 February. The Commitee is due to report on its findings by 20 March 2015.
The signing of the first agreement indicates that the Government is looking to proceed with the Asset Recycling Initiative even if it is unable to pass this legislation through the Senate. The Federal Treasurer is reported to have indicated that the Government would look to make incentive payments through an 'appropriation' Bill as an alternative mechanism for funding the Initiative.2
- 'First Asset Recycling Initiative agreement signed today', media release by Federal Treasurer Joe Hockey.
- Australian Financial Review, Hockey guarantees Baird’s $2 billion 'asset recycling' payment (19 February 2015).